Toyota outsells GM globally
Getting beat by Toyota just might be the best thing that’s happened to General Motors Corp. in years.
For the first time since 1931, GM lost its crown as the global car sales king last year, surpassed by Toyota Motor Corp., which sold 614,000 more cars and trucks than its American rival, according to data released Wednesday. After slowly creeping up on the top slot over the last decade, Toyota finally took the lead thanks to an 11% year-over-year sales slide by GM, which ended the year with 8.36 million vehicles sold.
It’s something of a mournful milestone for GM, the company that invented the modern automobile business. But beyond the wounded pride, experts say that GM’s humbling might be exactly what’s needed to get the troubled company back on track.
“Quite frankly, they weren’t making that much money when they were the biggest guys on the block,” said Shelly Lombard, debt analyst at Gimme Credit. Now, with GM borrowing $13.4 billion from the federal government to stay afloat, “the only thing that matters is the profitability title,” Lombard said.
For years, Toyota has downplayed the sales race and talked about focusing on the bottom line, while GM has trumpeted its market share in countries around the world -- and lost money.
Toyota always tried to make a profit on each vehicle it sold, enabling the Japanese company to make money even if it moved somewhat fewer cars. Toyota did this by keeping its supply tight and by standardizing production. The company kept costs low but sales prices relatively high.
GM, on the other hand, has been locked into a self-destructive cycle of overproduction and discounting that led to impressive sales volume but dismal profit margins.
With huge fixed costs in the form of labor, employee benefits, engineering and marketing expenditures, GM has tended to produce too many cars in the unrealistic hope that it could sell more and thus pay its high bills.
But when the excess capacity didn’t sell, the company was forced to sell the cars at steep discounts, gutting its bottom line.
“The key is the discipline not to overproduce,” said David Cole, chairman of the Center for Automotive Research. “GM was particularly guilty of that tendency.”
In 2005, for example, GM sold 9.17 million vehicles worldwide, an all-time high and over 1 million more than Toyota. But GM lost $10 billion that year, while Toyota showed a $10-billion profit.
“We sold 500,000 vehicles in one month,” GM spokesman John McDonald said. “It happened because we had an incredibly bloated inventory and it really didn’t do much for us.”
Moving forward, GM officials say, they plan to take a different approach.
That’s largely because the company is looking forward to greatly reduced overhead. In late 2007, it signed a landmark contract with the United Auto Workers union that will shift much of the company’s retirement liabilities off the books.
Just as important, GM is trying to cut production and keep its inventory leaner.
It’s a priority in any market, but particularly so in the currently brutal economy. Worldwide industry sales last year fell 5%, and in the crucially important U.S. market, total industry sales last year fell 18% to 13.3 million vehicles, a number GM predicts will fall by nearly 3 million more in 2009.
Last year, GM reduced its workforce substantially, cutting shifts at some plants and closing others.
As a result, its inventory at the end of 2008 stood at 892,000 vehicles, a 4% reduction from the previous year.
That’s a step in the right direction, but the company hopes to cut much deeper. By idling production at more than 20 plants for up to a month, it hopes to reduce first-quarter inventory 53%, GM said last month.
And because GM will have reduced its labor and materials costs so much in the process, it will be easier to find the black. At least in theory.
The reality, experts say, is that meeting company goals for production and cost reduction can be elusive. Even Toyota, which has been a shining example in the auto world, has run into problems of late.
Lured by the high profit margins of big vehicles during the boom for sport utility vehicles, Toyota dramatically increased production of SUVs in the U.S. in recent years, even building a pickup truck factory in Texas. But with the bottom falling out of that market when gasoline prices soared, and sales of even the smallest cars plummeting in the disastrous fourth quarter, Toyota also came down with a case of the inventory blues.
At the end of 2008, Toyota had enough vehicles on hand to last 92 days. That’s almost double what the automaker considers a healthy level, a problem that prompted Toyota to offer unprecedented incentives last fall, including its first-ever no-interest financing offer.
Not coincidentally, the company announced last month that it expected to report its first operating loss in 70 years.
“Usually our production of vehicles has been spot on with sales,” Toyota spokeswoman Zoe Zeigler said. “But this past year was extremely challenging.”
With expectations that 2009 will be even tougher, GM says it’s being extremely conservative in its production goals. That means another year at least behind Toyota, but it could also put the company back on the road to viability.
“I don’t think being No. 1 in global sales means much at all to the individual consumer,” said Michael DiGiovanni, GM’s chief sales analyst. “This is a great opportunity for us to really get the business right.”
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